What Does the Rise of National Insurance Mean for Employers and Employees?

The NHS has taken a considerable hit during the Covid pandemic and as a result, its resources have been stretched beyond its limits. Changes are being introduced regarding National Insurance Contributions as of April 6th, 2022, in order to fund social care and help the NHS recover. This will mean an increase of 1.25% in all National Insurance rates.

Who will it affect?

  • Employees, employers, and the self-employed will all pay 1.25p more in the pound for National Insurance from April 2022.
  • Employees will pay NI on their wages
  • Employers will need to pay extra NI contributions for staff
  • The self-employed will have to pay NI on their profits

From April 2023, the National Insurance will return to its former rates and be replaced with a Levy. This new tax will be the Health and Social Care Levy. It will continue to be paid by those listed above plus individuals at state pension age who are still working.

Who is exempt from the NI contributions increase

If your employee earns less than £50,270 (or £25,000 for Freeport employees) annually, then those listed below will not be required to make increased contributions.

  • Apprentices below 25
  • Employees under the age of 21
  • Armed forces veterans
  • Employees in Freeports

So how much can workers expect to pay?

A salary of £20,000 will incur an additional yearly payment of £89, £30,000 is £214 and £50,000 is £464. If you are lucky enough to earn £100,000, then it will cost you an extra £1,089.

Dulbinder Kaur Hullait, JARS’ Finance Director reflects on these changes, “the National Insurance increase is happening at a challenging time for employers. As businesses are recovering from the pandemic the increase in contributions will mean less to spend on investment and staff, therefore hindering growth plans. Employers may have to make tough decisions, for example not offering pay rises or even having to make pay cuts or redundancies in certain circumstances. If businesses decide not to hire extra staff due to the increases it will in turn have a devastating effect on the economy costing an enormous number of jobs, especially after the large-scale redundancies already seen during the height of the pandemic”.

The government says that the changes will mean £12bn a year will be allocated to helping the NHS. This will ease the insurmountable pressures it faces. Some will also go towards the social care system, helping the elderly and those with high care needs.